Cash Gush For Smaller Oil Cos

As per government estimates, total foreign exchange requirement in 1997-98 for importing crude and petroleum products is $10.12 billion. Of this, import bill for crude alone stands at $4.94 billion, accounting for 49 per cent of total requirement for crude and petroleum product imports. The international prices of crude oil stood at $20.47 /barrel in February 1997. Based on the above crude bill of $4.94 billion, 24.13 crore barrels would need to be imported. At present, crude prices have fallen to $14.12 /barrel, a decline of 31 per cent over the last one year. After reworking the import bill based on this price, there is a saving of $1.54 billion which works out to Rs 5,800 crore in rupee terms. The actual savings will be a bit less as the current calculation is based on prevailing crude prices, which are at their lowest.

This has encouraged the government to clear the Oil Co-ordination Committee (OCC) dues to smaller companies like Cochin Refineries (CRL), Madras Refineries (MRL) and Bongaigaon Refineries and Petrochemicals (BRPL) in cash instead of the proposed petro bonds. Clearing dues in cash will provide these companies with funds to meet their working capital requirements. While the bonds would have lowered their outstandings, it would only have been a book entry. These companies have been favoured, as the quantum of dues is smaller compared to other oil giants. The total dues work out to around Rs 8,000-9,000 crore for IOC, approximately Rs 2,500 crore for HPCL, around Rs 2,000 crore for BPCL, and around Rs 1,000-1,500 crore each for CRL and MRL.

If the government sticks to its plans of clearing these dues by March 31, then the balance sheets of these firms will see a significant improvement in cash flows in 1997-98. This, in turn, will have a positive impact on the stock prices of these companies.